Hiring Wars: Contractors Vs. Employees

Hiring in IT has been increasing since the beginning of 2010. However, as we draw closer to the imminent end of the year, it has become apparent that while IT employment has improved immensely, the make up of the workplace has also shifted significantly.

It seems that as more and more employers start hiring again, they are choosing to take on contractors rather than permanent employees. And it’s a trend that many analysts suggest will continue into the future, even after a full economic recovery. The fact is, hiring contractors has a number of benefits, many of which have been triggered and realized as a result of recent economic activity. As a result, a class of workers that was once in the minority is slowly balancing out with the majority.

There are two major changes that have recently made hiring permanent employees less desirable, as well as a slew of minor, existing factors that are starting to be realized.

Keeping Employees Healthy

The first major change has been the controversial issue of healthcare. Employers are now obligated to offer health insurance benefits to their employees, to ensure their medical protection. However, contractors are not considered employees, and therefore don’t require company healthcare benefits. The same goes for all other benefits and taxes the employer pays on behalf of the typical employee, including medicare, social security, vacation and sick days, retirement plans, and more. Many companies are feeling the financial pressures of offering health insurance in addition to other benefits, and consequently, are choosing to put their future hiring efforts into contractors.

Playing the Risks

Recently, the risks that come with hiring and firing employees are becoming greater. There seems to be an ever-increasing number of lawsuits against discriminatory hiring and wrongful termination. The problem is that many of these cases are rooted in innocent mistakes, incongruous reports, or twisted, convoluted stories. Throw a factor like social media into the mix, and suddenly you have a wrongful termination case over an employee who publicly slandered their company on a social networking site. It’s a complex, unprecedented situation, and it’s hard to know who’s in the wrong. Clearly, the risks are getting higher, but, like healthcare and benefits, simply don’t exist when it comes to contractors. You can discontinue use of contractors at your own will, which obviously greatly reduces employer liability.

Training Investments

Another factor that has surfaced when hiring employees is the expense of training. It’s a factor that has always existed but only now in tight times has it become an issue. Whether it’s on-the-job or before-the-job training, it’s a costly investment of time, money, and productivity. Plus, if for any reason the employee does not work out in the position, it’s no longer even an investment but just a plain loss of time and money. When it comes to hiring contractors, however, you typically hire someone with skills specific to your projects, so they won’t usually need any further training. They’ll simply get the job done.

Generational Differences

Finally, companies are hiring fewer permanent employees due to an overall shift in demographics. Generation Y workers are pouring into the workplace at an increasing rate, but their values are very different from previous generations. They are much more open to the idea of being their own boss; a value that leads them to the realm of contracting and freelancing. They view this career path as more flexible, requiring a higher level of autonomy – a highly attractive option for many high caliber individuals in this generation. This generation is larger than any generation in the past, and many are still in school. Once they are all in the workplace, it will be even more apparent that their goals and qualities are unique, and companies may have to cater their own practices and policies towards them.

The Bottom Line

It’s worth mentioning that just because contractors aren’t permanent employees doesn’t mean they can’t stick around for just as long. Many contractors in the workplace have been with the same company for years. Either way, it’s clear that for many employers, the benefits of hiring contractors significantly outweigh those of hiring permanent employees.

It’s a preference that’s turning into a major trend across the IT industry. CNNMoney reports that in 2005, less than one third of workers were contractors. Based on current trends, analysts estimate that number to reach almost 50% within the next 10 years. As the benefits of this trend become more obvious, will your company’s hiring practices shift also?